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TMI Blog2024 (4) TMI 661X X X X Extracts X X X X X X X X Extracts X X X X ..... al and AOP. The decision of the ld. CIT(A) to charge the assessee u/s. 164(1) is not correct it should be charged based on the specific provision of the Act u/s. 164(2) of the Act and the tax rate as applicable to that 164(2) will apply to the rate of the AOP/Individual and the initial exemption is also available to such assessee. Ground no. 2 raised by the assessee is allowed. Amount claimed to had been used for the purposes of the trust - CIT(A) has not granted the benefit of deduction of expenditure only on the reason that the assessee is not registered u/s. 12 A of the Act. Assessee placed on record the registration certificate issued to the trust on 22.03.2022 and therefore, considering that aspect of the matter we direct the ld. AO to grant the benefit of the deduction of the expenditure claimed by the as per object of the trust. Based on these observation ground no. 1 raised by the assessee is allowed. X X X X Extracts X X X X X X X X Extracts X X X X ..... arging tax at Maximum marginal rate on the whole income assessed." 5. Succinctly, the fact as culled out from the records is that the assessee filed its return of income in form ITR-7 on 17.07.2014 by declaring total income of Rs. 2,45,050/- comprising of interest income of Rs. 2,03,533 and income from voluntary contributions for Rs. 85,650/-. The assessee maintains a Jain temple at Charanwas District Nagaur. The assessee derives income from charity received from devotees coming to the temple and interest on bank deposits. Out of such earnings some expenses relating to maintenance of temple have been charged and net income has been offered in ITR. The assessee trust is admittedly not registered u/s 12A of the Income Tax Act, 1961 during the concerned years. The CPC while processing the returns charged tax on net income offered by the assessee at Maximum Marginal Rate whereas the assessee had offered the income by calculating tax as applicable on individuals which resulted into creation of demand. 6. Aggrieved from the order of Assessing Officer, the assessee preferred an appeal before the ld. NFAC. Apropos to the grounds so raised the relevant finding of the ld. NFAC is reiterate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he CPC computed tax on the taxable total income at the rate of Maximum marginal rate. The appellant submits that the income of the trust is eligible for tax chargeable at the rate as per section 164(2) of the Act as that of AOP and not MMR. 7(iii) This is an undisputed fact that the trust is not registered u/s 12A of the Income Tax Act. Hence provisions of sections 11 & 12 are not applicable not in this case. The trust deed has been registered. On its own volition the appellant has submitted its status as AOP/BOI(other trust/institution as per the income tax return). Since the appellant is a Trust, and it has to be assessed as a Trust and not in any other status, therefore and provisions of Section 160 to 167 are applicable in its case. Before arriving at any decision, it is necessary to analyze the provisions of law that are applicable in the case of trusts as below: 7(Iv) The first relevant provision of the Act is section 2(24)(iia) which is as under: "Definitions. 2. In this Act, unless the context otherwise requires,- ............. (24) "income" includes- (i) (ii).....: (iia) voluntary contributions received by a trust created wholly or partly f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Assessing Officer,- (i) where the trust has been declared before the 1st day of June, 1981, within a period of three months from that day; and (ii) in any other case, within three months from the date of declaration of the trust. Explanation 2.-For the purposes of clause (v), "oral trust" means a trust which is not declared by a duly executed instrument in writing [including any wakf deed which is valid under the Mussalman Wakf Validating Act, 1913 (6 of 1913)], and which is not deemed under Explanation 1 to be a trust declared by a duly executed instrument in writing. (2) Every representative assessee shall be deemed to be an assessee for the purposes of this Act." ME TAX DEPART In this case the beneficiaries are public at large. It has to be assessed in the hands of the trustee only. 7(vi) Liabilities of a trustee are defined in Section 161 of the Act as under: "Liability of representative assessee. 161. (1) Every representative assessee, as regards the income in respect of which he is a representative assessee, shall be subject to the same duties, responsibilities and liabilities as if the income were income received by or accruing to or in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arged on the relevant income or part of relevant income at the maximum marginal rate: TAX DEPAR Provided that in a case where- (1) none of the beneficiaries has any other income chargeable under this Act exceeding the maximum amount not chargeable to tax in the case of an association of persons or is a beneficiary under any other trust; or (ii) the relevant income or part of relevant income is receivable under a trust declared by any person by will and such trust is the only trust so declared by him; or (iii) the relevant income or part of relevant income is receivable under a trust created before the 1st day of March, 1970, by a non-testamentary instrument and the Assessing Officer is satisfied, having regard to all the circumstances existing at the relevant time, that the trust was created bona fide exclusively for the benefit of the relatives of the settlor, or where the settlor is a Hindu undivided family, exclusively for the benefit of the members of such family, in circumstances where such relatives or members were mainly dependent on the settlor for their support and maintenance; or (iv) the relevant income is receivable by the trustees on behalf of a provident fun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itable or religious purposes (as reduced by the income, if any, which is exempt under section 11) as if such part (or such part as so reduced) were the total income of an association of persons; and (b) the tax on that part of the relevant income which is applicable to purposes other than charitable or religious purposes, and which is either not specifically receivable on behalf or for the benefit of any one person or in respect of which the shares of the beneficiaries are indeterminate or unknown, at the maximum marginal rate: Provided that in a case where- (1) none of the beneficiaries in respect of the part of the relevant income which is not applicable to charitable or religious purposes has any other income chargeable under this Act exceeding the maximum amount not chargeable to tax in the case of an association of persons or is a beneficiary under any other trust; or (ii) the relevant income is receivable under a trust declared by any person by will and such trust is the only trust so declared by him; or (iii) the relevant income is receivable under a trust created before the 1st day of March, 1970, by a non-testamentary instrument and the Assessing Officer is satis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , and are ascertainable as such on the date of such order, instrument or deed." ANALYSIS The Section begins with the heading "Charge of tax where share of beneficiaries unknown. "The appellant claims to be created for the object of benefit of the Public. Clearly the beneficiaries share is indeterminate and unknown. Section 164(1) begins with the phrase "Subject to the provisions of sub-sections (2) and (3)". Thus it is the omnibus clause except for the cases referred to in section 164(2) & 164(3). It will necessary to understand to what these two sub sections refer to as once that is known, it will be easier to discern what the remaining cases are chargeable to tax as per Section 164(1). This analyzed as under: 1. Applicability of Section 164(2): The appellant has claimed that it is governed by the provisions of 164(2) as it is wholly public charitable trust. This is not disputed that the Trust is not Registered. No claim of Corpus donation has been made and only interest income has been earned. This is clearly covered as income of the Trust u/s 2(24)(iia) of the Act. But the question arises whether this subsection purportedly applicable to Trusts tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as been concluded that both these subsections are not applicable in the case of the appellant. The remaining cases where beneficiaries are unknown and shares indeterminate shall be covered by the omnibus section 164(1) of the Act and hence the case of appellant is covered u/s 164(1) Tax in cases covered u/s 164(1) of the Act shall be charged on the relevant income at the maximum marginal rate. Exception clauses as per the provisos wrt section 164(1) are not applicable in the case of appellant. 7(vill) It will also be pertinent to refer to Circular No. 320 [F. No. 131(31) / 81 - TP(Pt.)], dated 11-1-1982 which is enumerated as under "911. Whether the section is applicable to to Incom Income received by trustees on behalf of provident funds created exclusively for the benefit of employees 1. A reference is invited to paragraph 15.1 to 15.7 of the Explanatory Notes on the provisions relating to direct taxes in the Finance Act, 1981 [Circular No. 308, dated 29-6-1981] which explain the scope and ambit of section 167A, as inserted by the Finance Act, 1981. 2. A question has been raise whether the provisions of section 167A of the Income-tax Act which provide for charging of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me levels. The shares received by individual members is required to be added to their income separately and each member has to pay tax after including such share in his income. On the other hand, in a case where shares of members of an AOP are not known, section 167B comes into play. In such a case tax is to be charged at higher rate. Section 167B(1) deals with cases where income of any member is chargeable at higher rate of tax. As per section 167B(1) the income is chargeable at maximum marginal rate. However, if total income of any member is chargeable to tax at a higher rate than maximum marginal rate, then the total income of the AOP is to be charged at such higher rate(rate which is higher than maximum marginal rate.) Section 167B(2) deals with cases not falling under section 167B(1). In cases where income of any member of the AOP exceeds the maximum amount which is not chargeable to tax i.e. above basic exemption limit, the income of the AOP will be charged to tax at maximum marginal rate, if total income of any member exceeds the bank exemption limit. Further, if any member is chargeable to tax at a rate higher than maximum marginal rate, then such portion of the incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income of the association or body shall be taxed at the maximum marginal rate. Explanation. For the purposes of this section, the individual shares of the members of an association of persons or body of individuals in the whole or any part of the income of such association or body shall be deemed to be indeterminate or unknown if such shares (in relation to the whole or any part of such income) are indeterminate or unknown on the date of formation of such association or body or at any time thereafter." 5.4 In view of the clear and unambiguous provisions of 167B(2) if income of any member (other than the share of such Association) is higher than the basic exemption limit of the relevant year, the income of the Association is chargeable at the maximum marginal rate. 5.5. Before us, the assessee has not disputed the finding of the Learned CIT(A) that income of its member during the year under consideration exceeds the basic exemption limit. 5.6 In view of the above discussion, we do not find any error in the order of the Learned CIT(A) and accordingly, we uphold the same. The grounds raised by the assessee are accordingly dismissed. 6. In the result, the appeal of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered Tax worked out Processed by CPC 2013-14 245048 4640 89357 2014-15 328879 7700 122610 2015-16 222295 0 66690 2016-17 222181 0 66654 2017-18 239819 0 71946 Copies of all the intimations as provided by CPC have been enclosed in the paper book. It is apparent that the CPC has charged tax at MMR probably by considering the status of the appellant as AOP. Action of ld. AO :- As the CPC had processed the ITRs u/s 143(1)(a) without mentioning anything about the treatment and hence there is no speaking order of the Ld. AO. First Appeal : Against all the intimations the appellant filed appeals before Ld. CIT (A) and same were disposed off by ld. CIT (A), NFAC concurring with the view of the CPC in charging t ax at MMR on the appellant. This action has been mainly challenged in these appeals. The ld. CIT (A) had sustained the action of the CPC by stating as under :- Provision of section 164(1) and 167B are the relevant provisions applicable in the instant case and hence MMR is clearly applicable. Regarding claim of certain expanse in AY 2013-14 and 2015-16 he states that since the assessee institution is not registered u/s 12A and hence expenses can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any particular section of the society nor and there is any definite or indefinite share in favour of any beneficiary and hence both the said sections are not applicable in the instant case The ld. CIT (A) in his order has relied upon a case of Honourable ITAT, Delhi in the case of Air Force Navy Farm Owners Welfare Association v/s ITO wherein the Hon`ble ITAT held that society registered the provisions of Societies Registration Act, 1860 are excluded from the provisions of section 167B. Based on this decision he has stated that since the assessee is not registered under provisions of Societies Registration Act, 1860 and hence 167B shall come into play. He forgot to take into consideration that section 167B excludes any AOP registered under any law corresponding to Societies registration Act, 1860 in force in any part of India and the assessee institution is duly registered with Deputy Registrar under Indian Stamp Act and since the assessee has been formed for charitable objects and hence same is also covered with said exclusion. AS we know that there are both ways of forming a charitable institution i.e. through mode of trust or through registration under Societies Registration A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd more people for coming forward for contributing to the temple and hence as per section 57 same deserves to be allowed.. Appeal No. ITA No. 122/JODH/2021 (Assessment Year 2015-16) In this case the appellant had initially filed ITR by declaring income from interest at Rs. 2,22,295 and income from voluntary contributions for Rs. 60,400 and out of this total income of Rs. 2,82,695 it had claimed an expenditure of Rs. 64,808 spent on charitable activities and a net income of Rs. 2,17,887 was declared. The said ITR was treated as defective by CPC and hence the appellant had submitted another ITR declaring the income from interest only amounting to Rs. 2,22,295 which was processed by CPC at declared income. The ld. CIT in his order has mentioned at para 7(xiv) that since in the first ITR the assessee had declared a sum of Rs. 60,400 as voluntary contribution and had not declared any such income in second ITR and has enhanced the income and instructed the AO to take appropriate action to tax such income at MMR. This action of the ld. CIT (A) is wrong as before enhancing the income he has not issued any notice to the appellant and further in a way he has disallowed the claim of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ported the orders of lower authority. 11. We have heard the rival contentions and perused the material placed on record. From the facts argued by the ld. AR of the assessee the bench noted that the beneficiary in this case of the trust are the general public. So there is no share of beneficiaries whether known or unknown as the assessee is trust so charging the assessee as per the provisions of section 164(1) as held by the ld. CIT(A) is incorrect and the relevant facts has not been appreciated and since there is specific provision in section 164(2) the tax should be charged based on that specific section applicable to the trust assessee. The ld. AR of the assessee also submitted that considering the facts of the case even the provision of section 167B will not applicable and the ld CIT(A) has not appreciated the facts of the case of the assessee. When there is specific provision for charging the tax the general provision cannot be made applicable. Thus, we hold that when the provision of section 164(2) specially deals to charge the tax of those trust where the whole or any part of the relevant income is not exempt under section 11 and 12, the relevant provision of the Act is reit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or financial year, mean the rate or rates of income- tax specified in this behalf in the Finance Act of the relevant year, or as specified under specific sections, which includes Sec.164 and 167B also. The first schedule to the Finance Act reads; "(I) In the case of every individual other than the individual referred to in items (II) and (III) of this Paragraph or Hindu undivided family or association of persons or body of individuals, whether incorporated or not, or every artificial juridical person referred to in sub-clause (vii) of clause (31) of section 2 of the Income-tax Act, not being a case to which any other Paragraph of this Part applies. Even the revenue department website also advise that the tax rate of the trust is as applicable to the Individual and the screen shot of the same is reproduced herein below as to strengthen the discussion so record: Considering that aspect of the matter we are of the considered view that the decision of the ld. CIT(A) to charge the assessee u/s. 164(1) is not correct it should be charged based on the specific provision of the Act u/s. 164(2) of the Act and the tax rate as applicable to that 164(2) will apply to the rate of the AOP/I ..... X X X X Extracts X X X X X X X X Extracts X X X X
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